Company Analysis - Commissioned /
Bahrain

Aluminium Bahrain: Lower realised prices, higher depreciation trigger 2019f/20f earnings downgrade

    Vahaj Ahmed
    Vahaj Ahmed

    Head of Industrials Equity Research

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    Tellimer Research
    12 December 2019
    Published byTellimer Research

    We update our estimates for Aluminium Bahrain (Alba) post Q3 19 net profit of BHD11.0mn, and roll forward our valuation by a year. We assume lower aluminium and alumina prices for 2019f-23f which reduces our valuation estimate for Alba by 13% to BHD0.65/share (previously BHD0.75/share). The stock trades at a 2020f PE of 19.9x and EV/EBITDA of 6.6x (versus its peers’ 12.3x and 8.0x, respectively). 

    2019f-20f realised prices trimmed by 2-9%, 2021f-23f by 9-13%. We now estimate 2019f and 2020f realised prices of US$2,008/tonne and US$1,884/tonne (previously US$2,042 and US$2,062). For 2021f-23f, we now assume 9-13% lower realised prices. This is due to: (1) lower LME aluminium prices (using Bloomberg forecasts – see Figure 1); and lower physical premiums (see Figure 2). We maintain our long-term LME aluminium price assumption of US$2,150/tonne and all-in delivered alumina price assumption of US$400/tonne.

    Higher depreciation from Q4 19. With the official commissioning of Line-6 in Q4 19, we expect depreciation expense to increase from BHD71mn to BHD90mn (4.5% effective depreciation) in 2019f. We have also increased the effective depreciation from 2020f to 8.4% (previously 4.5%).

    Higher interest charges from 2020f. Earlier this month, Alba refinanced its US$1.5bn syndicated loan facility for Line-6 expansion. While the loan carries an interest margin of 300bps (previously 325bps) over LIBOR, it now has an 8-year tenor versus 4-year tenor previously. As a result, we estimate 8% higher finance costs in 2020f, while our estimates for 2021f-30f increase by 22% (on average).